After months of searching for the perfect candidate for the job, you’ve decided to expand your horizons. Instead of simply looking to a nearby city or neighboring state, you’re now setting your sights across the globe.
Whether the local market is tapped out or your company needs global expertise, hiring international workers comes with complexities. There are questions over how you’ll classify workers, make sure they get paid and remain compliant with local labor laws. Dealing with variations in employment laws between separate countries is a given. But as in the United States, there are also potential differences between states or provinces within a single nation.
Because of these intricacies, it’s highly recommended that companies retain local lawyers or employment specialists to navigate all the details. However, there are some general areas of employment laws you should know about and be prepared to manage. Here are the most important things you need to consider before you decide to wade into the international talent pool.
Setting Up a Legal Entity
Before you polish your recruitment ads or begin working with international headhunters, determine whether you need a local legal entity. Many countries won’t allow foreign businesses to hire international workers without setting up a legal entity. Other nations, such as Brazil or China, require you to establish a local office or branch.
If you do not have a local entity or do not wish to spend the (usually significant) time and money to set one up, you can hire locals through an employer of record (EOR). An EOR becomes the legal employer and ensures worker agreements are compliant with local laws. An EOR also handles administrative tasks, such as international payroll, benefits, and intellectual property protection.
An EOR goes a step further than a professional employer organization (PEO). Like an EOR, a PEO takes care of administrative responsibilities such as payroll taxes. However, a PEO does not become the legal employer or oversee compliance issues. PEOs are helpful to companies that plan to establish legal entities in the countries where they’ll be hiring.
Businesses hiring in global markets typically have the option to bring on board direct employees or independent contractors. But similar to working with freelancers in the U.S., classification laws in different countries can get tricky. There’s often a fine line between the arrangements that determine how to classify workers.
An example is the back-and-forth legal battle over how ride-hailing companies classify workers in California. Ride-hailing firms maintain they’re not violating worker classification laws by employing drivers as contractors, but drivers say otherwise. There have also been disagreements between state legislators, judges, and legal experts regarding whether drivers should be deemed, employees.
In other countries, avoiding legal issues like these is possible with thorough research of the local classification laws. Closely examine any applicable regulations, both nationally and on the state or provincial level. In most cases, a company’s amount of direction and control determines whether workers are employees or contractors. In the U.S., for example, a business cannot control how or when contractors perform their work.
Unlike the United States, most countries do not operate under employment at will. Written contracts are usually required when businesses hire direct employees. These contracts spell out the terms of employment, including length, pay vacation benefits, and working hours. For many U.S.-based companies, drafting official contracts with direct hires is uncharted territory.
While employee contracts have some similarities with freelance contracts, there is more at stake. Unlike in at-will employment, contracts establish specific legal responsibilities for employers and employees. These documents can include the length of employees’ probation periods per local laws. Employment contracts also clearly define job responsibilities, which typically limits an employer’s ability to assign other duties.
Contract agreements may include stipulations for termination, severance pay, and reinstatement procedures. Many countries require certain notice procedures and severance payments when a business terminates an employee. Those procedures and regulations also vary if one employee is let go or a group of employees is terminated simultaneously. An EOR or local labor specialist can help you navigate these laws if you decide to hire direct employees.
Executive vs. Non-Executive Roles
How and when local labor laws apply can vary based on the type of role you’re hiring. If you need to fill an executive position, employment contracts and classification laws may apply for the most part. However, employment contracts with executives might not have to specify working hours.
Because of the nature of high-level managerial work, following specific work hours is impractical. Many countries’ labor laws recognize this and exclude executive-level employees from these regulations. But as with any other labor regulation, this is not a hard-and-fast rule. There may be some exceptions, depending on where your selected candidates live.
A smaller percentage of nations allow some flexibility in classifying executive-level roles. In certain countries, businesses can hire top-level managers under independent contractor agreements. Contract agreements and international business laws stipulate the nature of the work they do for your company.
Hiring workers from other countries isn’t as simple as going across state lines. Employment laws are often drastically different from what most U.S. businesses are accustomed to. At-will employment doesn’t exist, and there’s more complexity with worker classification laws, as well as benefit and payroll requirements.
Knowing what regulations your business will encounter before making that first international hire is essential. While sorting through the details is demanding and not without risk, it can be done effectively. Working with an EOR Company removes many compliance issues that come with hiring abroad. With an EOR, you’ll check all the legal boxes, leaving you to focus on finding the expertise your business needs.
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